Reuters reported that Saudi Arabia has unexpectedly called on oilfield service firms to expand its oil rig count by nearly 30% to boost output capacity.

Mr Bill Herbert analyst of Simmons & Company said that Saudi state run oil giant Aramco met with leading oil service companies including Halliburton over the weekend, unveiling plans to boost the country's rig count this year and next to 118 from around 92 now.

He said that Saudi Arabia has been expected to tread water on its production capacity, so this is unexpected. The risk premium in the Middle East has risen. Also with Libyan production falling, Saudi Arabia may feel it has to be ready for higher production capacity.

Analysts said that more than any other country, Saudi Arabia defines its international role by the ability to rapidly increase oil production to meet growing demand or cover disruptions elsewhere, such as the recent collapse in shipments from war torn Libya. The Kingdom has responded by pumping 500,000 barrels per day to 750,000 barrels per day more in recent weeks.

Mr Peter Beutel oil analyst of Cameron Hanover in Connecticut said that this is Saudi Arabia's raison d'etre. It must ensure that spare capacity is sufficient or else its importance in the world will be diminished. A recent Saudi output boost to around 9 million barrels a day may have made Aramco apprehensive about its ability to prime the pumps further if the world calls for much greater volumes.

Mr Roger Read MD at Morgan Keegan in Houston said that at the start of the year they were producing around 8.5 million barrels per day of oil and were sitting on around 3.5 million barrel per day of spare capacity. They've had to increase production by between 500,000 barrel per day and 750,000 barrel per day after Libya went out of the market so their spare capacity is already way down.

(Sourced from Reuters)